Coatings World - January 2011

Alternative Market Segmentation Models

Using the voice of the customer to shape impactful business strategy.

by Thomas P. Frauman
Contributing Editor
tfrauman@yahoo.com

One of the most fundamental tenets of marketing is market segmentation. The story goes that all sources of competitive advantage drive from the firm’s ability to deliver superior customer value on benefit attributes that are both relevant and important to clients. To accomplish that end, the firm should understand the universe of current and potential customers—both who they are and what they want. Without this understanding, how might coatings companies deliver differentiated product and service offerings unique from competitors and the universe of other potential substitutes?

Given the nature of a diverse and complex world, segmenting our business into “bite‐sized” chunks represents a generally accepted approach to focus organizational resources and offerings that more directly speak to the needs of a specific grouping of clients. Most commonly, coatings firms employ an industry sector approach to group customers; however, the following list contains three typical means of partitioning a firm’s universe:

Industry Sector: Standard and Poor’s Global Industrial Classification (GICS), Standard Industrial Classification (SIC), or North America Industry Classification (NAICS);

Technology Platform: Epoxy, acrylic, UV curable, etc; and

Geography: Asia Pacific, North America, Europe Middle East and Africa (EMEA), etc.

Marketing executives with professional titles and roles attached to an industry sector are more common in corporate headquarters than Starbucks cups or day old Wall Street Journals. At the corporate level, following an industry sector approach affords the benefit of presenting a logical organization structure to the financial community and supporting benchmarking against well-studied economic sectors. Organizations are aligned to specialize in markets with names like transportation, building and construction, energy and alike; but, does this sector‐based structure stage im-

Throughout my career, I have witnessed numerous well-intentioned efforts to infuse the voice of the customer into strategic planning and resource allocation. With extensive data gathering employing various types of survey instruments, results are scored and compared only to reach the startling conclusion that customers in segments as diverse as waste water treatment and metal furniture all ascribe highest value to quality, price and delivery. While I don’t argue these are important benefit attributes, I do suggest that this view of the world falls significantly short of providing actionable market segment strategies that can guide the firm in fortifying and positioning competitive advantage to expand share.

Within a sector, a deeper look at customer survey data typically reveals a longer list of attributes, in aggregate not as important as the big three, but still important to some and not as important to others, puzzling, right? As numerical values are assigned to survey responses these outliers commonly have lower mean scores but stand out because of higher standard deviation values.

The acid test for the validity of a market segmentation structure is individuals within a segment should have homogeneous benefit affinities; in other words, they should want and value the same things. Furthermore, this grouping of like-minded firms should have discernibly different preferences than firms in the other segments. Let’s explore this concept further in the context of the traditional industry sector approach. As an example, if we take a look at the aerospace market is it remotely plausible that manufacturers producing high‐end corporate jets would have the same needs and wants as a manufacturer producing rockets to launch telecommunications satellites? Might it be likely that product attributes that are aesthetic in nature would be more relevant for the corporate jet and of little to no importance for the rocket? What about unit price sensitivity of the corporate jet producer, versus a mass-market producer of single engine propeller planes?